On January 2, 2020, MacCloud Co. issued a 4-year, $100,000 note at 6% fixed interest, interest payable semiannually. MacCloud now wants to change the note to a variable-rate note. As a result, on January 2, 2020, MacCloud Co. enters into an interest rate swap where it agrees to receive 6% fixed and pay LIBOR of 5.7% for the first 6 months on $100,000. At each 6-month period, the variable rate will be reset. The variable rate is reset to 6.7% on June 30, 2020. Instructions a. Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2020. b. Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2020.

On January 2, 2020, MacCloud Co. issued a 4-year, $100,000 note at 6% fixed interest, interest payable semiannually. MacCloud now wants to change the note to a variable-rate note. As a result, on January 2, 2020, MacCloud Co. enters into an interest rate swap where it agrees to receive 6% fixed and pay LIBOR of 5.7% for the first 6 months on $100,000. At each 6-month period, the variable rate will be reset. The variable rate is reset to 6.7% on June 30, 2020. Instructions a. Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2020. b. Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2020.

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

ChapterA: Appendix - Time Value Of Cash Flows: Compound Interest Concepts And Applications

Section: Chapter Questions

Problem 27E

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Instructions

a. Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2020.

b. Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2020.

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